TITLE: CONCERNING THE EXEMPTION OF CERTAIN RETAIL TRANSACTIONS FROM SALES AND USE TAXES.

The bill, as amended by the Senate Finance Committee (Senate Journal, January 23, 1998, pp. 93 - 95), would repeal the state sales tax on all sales and purchases of clothing and footwear from July 1, 1998, through June 30, 1999. The legislative declaration of the bill identifies this one-year sales tax exemption as a way to return excess state revenues in accordance with the requirements of Section 20 of Article X of the State Constitution. The bill would reduce state General Fund revenues. As amended, the bill is permissive for local governments. Sales and purchases of clothing and footwear exempted from the state sales tax may be exempted from statutory cities and counties, and special districts whose sales and use tax is collected by the state only by the express inclusion of the exemption through an initial sales tax ordinance or through a resolution or amendment to the local sales tax ordinance. The bill would become effective July 1, 1998

STATE FISCAL IMPACT SUMMARY	FY 1998/99	FY 1999/2000
State Revenues General Fund (reduction) Other Fund	($102,940,976)
State Expenditures General Fund Other Fund
FTE Position Change	None	None
Local Government Impact — The bill is permissive for local governments. Sales and purchases of clothing and footwear exempted from the state sales tax may be exempted from statutory cities and counties, and special districts whose sales and use tax is collected by the state only by the express inclusion of the exemption through an initial sales tax ordinance or through a resolution or amendment to the local sales tax ordinance.

Legislative Council staff has projected the state’s revenues that will be in excess of the state fiscal year spending limitation for the 1998-99 fiscal year, as required by Section 20 of Article X of the State Constitution to be $286.10 million. This bill would repeal the state sales tax on sales and purchases of clothing and footwear, effective July 1, 1998, through June 30, 1999, thereby reducing the projected state revenue excess by $102.94 million to $183.16 million.

The 1995 Bureau of Labor Statistics Consumer Expenditure Survey (latest available) reports that, on average, families in the United States spent $1,502 annually on clothes and shoes. This represents an expenditure of 4.1 percent of average family income. Based on projected Colorado family income for FY 1998-99, it is estimated that clothing and footwear purchases in Colorado will be $3.55 billion. Based on the Colorado sales tax rate of 3.0 percent and the vendors’ discount equal to 3.33 percent of the sales tax collected, it is projected that the FY 1998-99 General Fund revenue reduction that would result from exempting clothing and footwear from the imposition of the state sales tax will be $102.94 million. It is assumed that purchases of clothing and footwear by nonresidents in Colorado will be offset by similar purchases made out-of-state by Colorado residents. The potential effect of increasing retail sales as a result of the one-year sales tax exemption has not been estimated.

Section 20 of Article X of the Colorado Constitution, limits the maximum annual percentage increase in state fiscal year spending. Once total state revenue from all sources that are not specifically excluded from fiscal year spending exceeds these limits for the fiscal year, the state constitution requires that the excess shall be refunded in the next fiscal year unless voters approve a revenue change as an offset. Based on the current Legislative Council economic forecast, it is projected that the state will be in a TABOR refund position during each of the next five fiscal years. Any increase or decrease in state revenue from changes in fees, fines, licenses, or other revenue sources will affect the amount of the state revenue to be refunded.

The bill is permissive for local governments. Sales and purchases of clothing and footwear exempted from the state sales tax may be exempted from statutory cities and counties, and special districts whose sales and use tax is collected by the state only by the express inclusion of the exemption through an initial sales tax ordinance or through a resolution or amendment to the local sales tax ordinance.

The fiscal note would imply that no appropriations or spending authority are required to implement the provisions of the bill.